EBRD upgrades Turkey forecast, but vulnerabilities remain

By Dilara Sarı

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Watch the launch of the Regional Economic Prospects

  • EBRD has revised Turkey growth forecast upwards to 4.5 per cent
  • Widening current account deficit and short-term external debt are key vulnerabilities
  • Banks are well-capitalised but global tensions may impact growth trajectory

The European Bank for Reconstruction and Development (EBRD) has upgraded its 2022 growth forecast for Turkey to 4.5 per cent on the back of a more-robust-than-expected domestic demand and a modest recovery in exports. 

The previous forecast in May 2022 had projected growth for the country this year at 2 per cent.

The forecasts were released today in the bank’s latest Regional Economic Prospects report, and chart the impact of the war on Ukraine, reduced gas supplies and worldwide inflation on the economies in which it invests.

The report highlights Turkish banks as one of the economy’s strengths as they remain well-capitalised with a headline non-performing loan ratio of below 3 per cent. While economic activity remained relatively robust, the rapid loss in value of the Turkish lira and rampant inflation remain key vulnerabilities.

Turkey’s widening current account deficit and short-term external debt, which stands at US$ 180 billion, also remain significant concerns in terms of reserves, which currently stand at around US$ 15 billion. 

The Bank expects the Turkish economy to grow by 3.5 per cent in 2023, in line with projections earlier in the summer, driven by household and public spending ahead of planned elections. Global downturn risks such as geopolitical tensions and aggressive monetary tightening in developed countries also risk affecting Turkey’s growth.

Turkey remains one of the Bank’s largest markets, with more than €16,8 million invested in over 380 projects, mostly in the private sector.

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